The MIRR Calculator helps finance professionals and investors to determine the profitability of investments or projects. It provides an accurate reflection of an investment's potential by taking into account the cost of capital and the reinvestment rate.
Results
Data Source and Methodology
All calculations are rigorously based on formulas and data provided by authoritative financial sources.
The Formula Explained
MIRR = \(\left(\frac{FV}{PV}\right)^{\frac{1}{n}} - 1\)
Glossary of Terms
- Initial Investment: The capital invested at the start of the project.
- Cash Flows: The series of net cash inflows or outflows over time.
- Finance Rate: The cost of financing the investment.
- Reinvestment Rate: The rate at which cash inflows are reinvested.
Example Calculation
Suppose an initial investment of $10,000 with cash flows of $2,000, $3,000, and $4,000 over three years, a finance rate of 5%, and a reinvestment rate of 6%.
Frequently Asked Questions (FAQ)
What is the purpose of the MIRR?
The MIRR provides a more accurate reflection of an investment's profitability by considering financing and reinvestment rates.
How does the MIRR differ from IRR?
While IRR assumes reinvestment at the IRR itself, MIRR uses separate financing and reinvestment rates, offering a more realistic scenario.
What is a good MIRR value?
A MIRR higher than the project's cost of capital is generally considered good.
Can MIRR be used for all types of projects?
Yes, MIRR can be applied to different types of investments and projects.
Why are financing and reinvestment rates important?
These rates provide a realistic evaluation by incorporating the cost of borrowing and the expected return on reinvested funds.